Just when you think the market is resuming its uptrend, someone gets spooked and the trend reverses. Starting on January 1st of this year, IBD® has called “Market in Confirmed Uptrend” five times. It lasts for just a couple of days before the market retreats. This roller coaster is a sign of a tired bull market. Institutions are quick to dump a stock when they see any earnings, economic reports or any major world events not to their liking. For the Month of April, SPY was up a mere 0.98% but QQQ was up 1.92%. May is historically a month that performs very poorly (although that wasn't the case last year). This is why it's so important to utilize charts to get the story going forward.
Clues From Institutions
Institutions have been laying a very clear trail as to where they are deploying their cash. In my last 2 Monday posts, I mentioned that institutions are committing a lot of money to the lagging Energy (XLE) sector. The result of this action is that n the last 6 weeks, this sector has moved up more than 10%.
This earnings season has been brutal to some of the leading stocks in the Technology (XLK) and Health Care sector (XLV) and institutions have been pulling monies out of these past leading sectors into the Energy related sector. They have also deployed a lot of cash into other leading world markets such as Europe, Korea, China and Hong Kong.
Opportunities on the Horizon
When I build out my watch list by using my very strict criteria, I come with just a couple of names to look at. I don’t want to lower my standards just for the sake of getting a few more stocks on my watch list. The fact that just 2 names comes up on my watch list is a definite sign to me of a market that will trade sideways. We also have 12 distribution days and that is still too high for my trading style. With that in mind, I have lowered my expectations of profits even further down to just 8% for my selected stocks to perform in the next 8 weeks. Stocks on my radar are:$VRX
$ORLY
and one ETF to consider as well:
$XLE
I have developed a very strict trade plan for these names and the key is now to follow these plans very strictly. Getting a lower entry into position is highly advantageous to mitigate losses, should the market turn against you. Once again, I must emphasize that one should not chase the trade. Last week $ORLY was on my radar but I cautioned that quite often, these good stocks do retrace and give you a second opportunity to enter the trade. $ORLY just did that for us this week.
Happy trading!
Amin
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